By Using the Tax Shield Approach for Calculating Operating Cash

question 86

Multiple Choice

By using the tax shield approach for calculating operating cash flows we can:

• A) Obtain more accurate results than with the customary methods.
• B) More readily verify what cash flows would be without interest expenses.
• C) More readily identify the tax benefits of debt financing.
• D) More readily identify the tax benefits of depreciation.
• E) Start with the bottom line, net income, and work backwards.

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Definitions:

Marginal Principle

A decision-making practice that involves considering the additional benefits or costs of a change in activity level, choosing to increase the level if the marginal benefits exceed marginal costs.

Resources

Assets, materials, or substances available for use in the production process, human activities, or for satisfying needs.

Economists

Professionals who study how societies use scarce resources to produce valuable commodities and distribute them among different people.

Opportunity Cost

Opportunity cost represents the value of the best alternative that is foregone when a choice is made between several mutually exclusive options.